Global Economics

A Yank on the Firing Line

Sol Trujillo is raising hackles as he remakes former state-run telco Telstra

Sol Trujillo is trying hard to fit in. Since taking over at Australia's Telstra Corp. (TLS) in 2005, the former chief executive officer of US West Communications Inc. has sparred with politicians, regulators, and the media over his plans to remake the country's leading telephone carrier. But on a recent visit to Adelaide, capital of the state of South Australia, Trujillo went out of his way to prove he's no outsider. He sprinkles his speeches with references to "barbies" and a local stock car race, and he mentions that Adelaide is his wife's favorite city Down Under. At lunch he extols the benefits of Telstra's transformation from a state-run monopoly into a profit-driven corporation. "We are empowering customers across Australia, including Southern Australia," he says.

Insider? Well, maybe not quite yet. Business leaders in the audience are too polite to point out that their state's name is South Australia, not "Southern Australia"—a gaffe Trujillo makes five times in his 15-minute speech.

Boning up on Australian geography may be the least of Trujillo's problems. Two years after taking the job, the 55-year-old Wyoming native still has plenty of work left in turning around Telstra. When Trujillo arrived in Australia, the company was losing market share at home, a plan to expand in Asia had gone bust, and its stock was sagging. "It was like AT&T in 1984," when U.S. regulators ordered the breakup of the phone monopoly, recalls Trujillo. "This was a company that needed an end-to-end transformation."

For Trujillo, that's both a business and a cultural challenge. Profits for the six months through December fell 21%, to $1.3 billion, on revenues of $8.8 billion, as Telstra has fought off new rivals in fixed-line and cellular services and grappled with the threat posed by free Internet calling. Its CEO, meanwhile, must contend with an often hostile local press that, much to his irritation, isn't shy about making references to his Hispanic heritage, routinely branding executives he has brought in from the U.S. as his "amigos."

Despite the ribbing, Trujillo can point to some successes. Last year, Telstra finally freed itself from government control after politicians in Canberra agreed to pare back the state's holdings from 51% to 17%. Robust growth in the company's wireless division has helped offset the decline in its traditional fixed-line business. And Telstra's shares, which sank in the wake of Trujillo's appointment, have rebounded and now stand 28% above their 12-month low in mid-October. Key to the turnaround is what Telstra calls "Next G," an $816 million ultrafast cellular network that allows users to, say, download a song in less than a minute, about one-fifth the time it might take on already-speedy 3G mobile networks. Trujillo boasts that subscribers to the new service are five times more likely to buy music or make video calls, which translates into a 35% increase in revenues per customer.

SCUTTLE DIPLOMACY

The next G rollout has also provided Telstra's chief with a welcome diversion from his nasty fight with regulators. Last August, Trujillo ditched plans to build a fixed-line broadband network that would have provided half of all Australian households with super-fast Internet connection speeds. Telstra reversed course because Australia's Competition & Consumer Commission, in a bid to spur competition, was pressing the carriers to open the network to other operators. The tough-talking Trujillo fumes at the notion that rivals such as Vodafone Group (VOD) and Singapore Telecom Ltd.'s (SGAPY) Optus should be allowed to piggyback on his company's multi-million-dollar investment. "It's a parasitic model," he says of the government's policy. The ACCC declined to comment, but Australian Prime Minister John Howard has said he will not be "blackmailed" by Telstra. Trujillo isn't easy on his competitors, either, calling the companies lobbying for access to the planned network "the Nine Dwarfs."

That's trademark Trujillo, say those who know him from the U.S. "Sol's not one to shy away from a fight," says Robert E. Knowling Jr., who worked with Trujillo at US West from 1996 to 1998. When Trujillo took over the Baby Bell in 1995 the company was struggling with the loss of its monopoly, and customers derided it for being slow and stodgy. "People called it US Worst," but Trujillo made great strides in improving its service record, says Knowling, now CEO of Vercuity Solutions Inc., a Colorado company that provides business services to the telecom industry. Trujillo left US West in 2000 after shepherding the outfit through a merger with Qwest Communication International Inc. (Q) In 2001 he joined the board of Orange (FTE), the cellular carrier owned by France Telecom. In 2003, he became the company's CEO, a job he held for 13 months.

These days, Trujillo insists, he's not picking a fight with Australia's regulators. He says he's just sticking up for Telstra shareholders and employees. To that end he appointed Phil Burgess, a pugnacious American who was an advisor to us West. His job is to drum up support among investors and workers for Telstra's stand against the government. Burgess has fielded a rapid-response team of bloggers who use a new Telstra-sponsored Web site to counter negative coverage in the mainstream media. To critics who say such tactics might offend politicians Down Under, he's unapologetic. "Where we come from, that's why you have politicians—to have someone to offend," Burgess says. "If you don't want to be offended, you shouldn't be in politics."

That attitude feels like a welcome change to some of Telstra's rank and file. In the past, many of the company's workers were embarrassed about its sorry reputation. "Sol has taken on the big issues. He's not concerned about the criticism he gets," says Mark R. Bolton, a Telstra regional manager who attended a pep rally for 500 workers during Trujillo's Adelaide visit. "It's absolutely refreshing," adds Bolton, who tends to Telstra's customers in the Outback, some of whom are so isolated that it can take six hours to reach them by car.

But is Trujillo's chest-thumping effective? David Kennedy, a research director for Ovum-RHK in Melbourne, isn't sure it's doing much to win over Australia's regulators and leaders. "There has been a lot of heat and noise," says Kennedy. "But I haven't seen any evidence that it has had a political impact yet."

Indeed, as far as Telstra is concerned, the political climate may be taking a turn for the worse. On Mar. 20 the opposition Labor Party announced a proposal to sell about $3.7 billion worth of the government's remaining stake in Telstra and use the funds to build a national broadband network open to Telstra's competitors. With Labor in the lead heading into next year's national elections, Trujillo may have to work that much harder to fit in.